The Payday Loan Industry Feeding off Recession’s Victims
Posted by Matt Krautstrunk on October 4, 2010 in Financial Services [ 1 Comment ]
Payday loans are the topic of fierce debate lately. Payday loans, essentially “emergency” loans, intended use is for unexpected expenses. The payday loan industry has been booming as of late, and more and more of the recession’s victims are relying on payday loans to finance corporate and personal debt. Although this may not sound controversial, payday loans are easily accessible and have extremely high interest rates that often cause the debtor to fall deeper in the red.
Before going through the procedure of taking out a payday loan you must know how the process operates. There are often no credit checks required for a payday loan, but the fees are imposed on each paycheck. According to Consumers Union fees are typically between around $17.50 on every $100 earned on the paycheck. This may not seem excessive at 17.5%, but when making payments paycheck to paycheck, the fees will add up quickly. Lenders reset the fees each time a borrower gets a paycheck and doesn’t pay in full. This adds up very rapidly and will continue to force debtors to struggle for breathing room.
Joe Lilly, spokesman of My Money Partner.com, thinks the payday loan service is necessary. He admits that the industry has a distasteful past, but its present and future is changing the way companies run their businesses. It’s important to note that payday loans are very useful when emergencies arise, such as medical bills or unexpected cash problems. Both sides make a valid point, and in an economy where any cash can keep you afloat, payday loans may be the only viable option.
For the next month, committees of both parties in Montana will be lobbying I-164. I-164 will cap the interest rate that lenders can charge at 36%. Payday loan sharks are extracting extremely high profits from debtors, and lobbyists for the proposed bill are infuriated that they can continue to trap people. Each State imposes different loan regulations and it’s worth a look to see if we will continue to see payday loaning dwindling as the ratification of new laws takes them in to account.
Image credit: Payday Loan Pad